Michigan’s low-income tax break shrinks

Democrats introduce bills to restore it

March 4, 2013

LANSING (AP) - Lansing taxi driver and single father Terry Beasley uses the federal and state earned-income tax credit to supplement the $12,000 he brings home every year, pay off bills and buy new clothes for his son.

"It's going to mean I'm going to have a whole lot less money and be a lot poorer," he said.

About 800,000 low-income Michigan families, who qualify for the state's earned income tax credit like Beasley, will bring home less money this year due to a reduction in the state's earned-income tax credit to 6 percent from 20 percent of the similar federal credit, part of sweeping tax changes Republican Gov. Rick Snyder signed in 2011.

Democratic lawmakers in the Republican-led Michigan House and Senate have introduced bills that would restore the state's refundable tax break for low-income workers to 20 percent. They say the tax break helps low-income working families cope, but Republicans say Democrats lack a plan to pay for the increase, which would cost the state about $252 million a year.

Rep. Tim Greimel of Auburn Hills, leader of the Democratic caucus, said his party may have leverage to increase the credit this year because Snyder may need their support to pass plans that include increasing funding for early childhood education and expanding Medicaid under the Affordable Care Act.

The federal government has offered the tax break for low- and-moderate income individuals and families for more than 30 years as an incentive to work. Michigan and 22 other states offer a similar credit on top of that.

But the tax break in Michigan was lowered in 2011 from 20 percent to 6 percent of what the federal government offers to help reduce the state's billion dollar deficit.

Snyder spokesman Kurt Weiss said in an e-mail that the governor supports the 6 percent credit, "even though more than half of the states across the nation offer no state EITC." He said there are other ways the administration is working to support low and middle income families, including the Medicaid expansion and Healthy Kids Dental, which provides dental coverage for low-income children.

But Democratic Sen. Bert Johnson of Detroit, who is sponsoring one of the bills, said the tax break benefits not only the people who receive the credit, but the communities where they live.

"I think we all can agree that a few extra dollars in any of our pockets probably makes it back to the local economy very quickly," Johnson said.

Greimel said that while Democratic support for issues such as the Medicaid expansion and Snyder's plan to increase funding for early childhood education would not be "contingent on the earned income tax credit," they are issues he believes the Republicans won't be able to get through the legislature without Democratic support. That may put Democrats in a position to get this accomplished this year.

The tax break rewards people who choose work over welfare and should not be a partisan issue, Greimel said.

"It's exactly the kind of policy that one would think would be supported by those who claim to be conservative and claim to support a good work ethic," he said.

Senate Minority Leader Gretchen Whitmer, D-East Lansing, said restoring the tax credit is among the investments she believes the state needs.

"In any discussion that I have, that will be part of what we push," she said.

Ari Adler, spokesman for Republican House Speaker Jase Bolger of Marshall, said the majority of EITC relief that low-income families receive comes from the federal level. He said House Republicans are not considering boosting the credit as a part of any tax changes this year.

Senate Majority Leader Randy Richardville of Monroe said that while he will consider increasing the credit, the amount "kind of depends a little about what we can afford."

Republicans say the Democratic proposal cites no way to pay for the increase.